UZBEKISTAN CELERBRATED ITS 30TH ANNIVERSARY OF INDEPENDENCE IN SEPTEMBER WITH MANY REASONS TO LOOK FORWARD TO A FUTURE OF POSITIVE PROSPECTS AND ECONOMIC PERFORMANCE
UZBEKISTAN is one of the leading economies of Central Asia with a GDP per capita slightly more than US$1,800. Pre-pandemic growth rate remained around the 5% level. Although in 2020 following the COVID-19 breakout this fell to about 1.6%, Uzbekistan was one of the few countries that still managed to maintain a positive growth rate. This is was thanks to the implementation of measures to counter the economic crisis, including the creation of the Anti-Crisis Fund and the support of low-income groups of the population and enterprises.
In 2021, the European Bank for Reconstruction and Development (EBRD) improved its economic growth forecasts for Uzbekistan from 4.5% to 5.6% as the result of structural reforms that the country started almost five years ago to open up the economy and liberalize trade – which are still ongoing till today. They are widely recognized by reputable international organizations. In particular, in the report of the World Bank and the International Finance Corporation Doing Business-2020 that Uzbekistan took 69th place, and in terms of the scale and effectiveness of the reforms being carried out, it entered the Top 20 best reformed countries in the world. This year, for the first time, Uzbekistan is included in the Index of Regulatory Restrictions on Foreign Direct Investment of the Organization for Economic Cooperation and Development (OECD), which is an indicator of the degree of openness of the economies of various countries to foreign investors.
Due to institutional improvements and large-scale reforms in the investment and economic spheres, effective interaction of relevant ministries and departments to improve the business environment and investment climate, Uzbekistan has taken a position at the level of the average indicators of the OECD countries. In addition, Uzbekistan improved its position in the index of economic freedom in 2021, moving up six positions and taking 108th place out of 178. The level of economic freedom in Uzbekistan is 58.3 points out of 100.
For the first time, the international rating agency Moody’s assigned Uzbekistan a B1 rating, raising the forecast to “Positive”. Prior to this, the forecasts were characterized as “Stable” or “Negative”. This fact also testifies to the effectiveness of institutional and political reforms aimed at the socio-economic development of the country.Further economic growth is facilitated by expanding trade ties and improving relations with neighbours from Central Asia, China and the European Union (EU), expanding the range and geography of exports of Uzbek products.Uzbekistan’s access to the EU’s «Generalized System of Preferences Plus» (GSP +), approved in 2021, will increase textile exports to the EU from 150 million euros in 2022 to 1 billion euros by 2025.
The last three years have shown that Uzbekistan’s opportunities for economic development are quite high. This is confirmed by such factors as high GDP growth rates, an increase in the level of economic freedom of entrepreneurs and investors, the financial stability of the state, and an increase in the country’s competitiveness by stimulating private investment in the creation of high-tech industries. As part of the leading reforms, the multiplicity of exchange rates has been eliminated, and the illegal foreign exchange market has been eradicated. Now every investor has the opportunity to freely convert foreign currency through authorized banks. Moreover, in order to further simplify the exchange rate regime, the mandatory sale of export foreign exchange earnings for all economic entities of Uzbekistan was cancelled. This measure allowed the business to freely dispose of their foreign exchange funds coming to their accounts.
Since the beginning of this year, 70 out of 266 types of licenses have been cancelled, as well as 35 out of 140 permitted. The deadlines for processing 14 types of licensed activities and permits are almost halved.In order to improve the efficiency of the state sectors of the economy, the optimization of the structure of the Cabinet of Ministers, the energy sector, mining and aviation industries was carried out. Separate agencies have been created to manage state assets, attract foreign direct investment, antimonopoly and anti-corruption committees. These measures have significantly increased the efficiency of the key sectors of the economy, as well as the government as a whole.
Banking and Land Reforms
To carry out a cardinal transformation of the banking sector, the «Strategy for reforming the banking system of the Republic of Uzbekistan for 2020-2025» was approved, which provides for stimulating the development of the private sector, increasing the investment attractiveness of banks, the availability and quality of banking services. An important reform was the change in the procedure for the privatization of land plots and the definition of their legal status as private property and objects of civil circulation. In accordance with the law «On the privatization of non-agricultural land plots» adopted in March this year, the privatization of land plots can be carried out in the form of redemption and sale through an electronic online auction. At the same time, the right to private ownership of privatized land plots is inviolable.The process of privatization of state-owned enterprises in Uzbekistan is now becoming a driver for the next stage of economic growth. The main goal is to expand the participation of private capital as soon as possible, reduce the participation of the state in the economy and further improve the competitive environment. In particular, within the framework of the transition to market mechanisms of some industries and large enterprises, in relation to more than 620 state assets, it is envisaged to carry out transformation, put it up for public auction, and sell it to the private sector.
Extensive Privatization Programme
In October 2020, Uzbekistan unveiled its extensive privatization program, which would see some of the country’s largest companies become fully or partially private. The list includes such enterprises as «Uzbekneftegaz», gold and uranium mining company «Navoi Mining and Metallurgical Combine (NMMC)», «Uzbekiston Havo Yullari», «Uzbekiston Temir Yullari» and the car manufacturer «Uzavtosanoat». According to the Agency for State Asset Management, in the first half of 2021, state property was sold in the amount of about US$105 million. For comparison, an amount of US$150 million is given, reflecting privatization over the past four years. At the same time, the practice of selling state-owned facilities at a “zero” redemption value has been cancelled.Due to the ongoing reforms, the inflow of foreign direct investment is consistently increasing. For foreign investors, a simplified customs and tax regime has been established, as well as a regime of entry, exit and stay in the country, conditions of labour relations, the implementation of financial and credit activities and other benefits and preferences.
Particular attention is paid to improving the investment and business climate, strengthening the protection of the rights and interests of both foreign and local investors. The institutional base in this area is being strengthened, the institutions of international arbitration courts are being developed, which ensure the rule of law and the proper fulfilment of the obligations assumed by the state and investors, the laws «On international commercial arbitration», «On investments and investment activities», «On special economic zones» have been adopted a number of previously adopted normative legal acts were unified. The implementation of these documents has significantly improved the conditions for investment in Uzbekistan. Along with the existing legal means of protecting the rights and guarantees of the activities of local and foreign investors, the state continues to introduce new mechanisms to protect the rights and legitimate interests of entrepreneurs.
Major Projects & Investments
Among the many positive changes that have occurred in recent years in this area, one can note the creation, at the initiative of the head of state, of the Institutions of the Business Ombudsman under the President of Uzbekistan and the reception offices of the Prime Minister to consider appeals from entrepreneurs. Due to the ongoing reforms, the share of foreign investment in various sectors of the economy of Uzbekistan is growing. Thus, credit agreements totalling US$25 million were signed between Indorama Kokand Fertilizers and Chemicals, the International Finance Corporation and the EBRD to modernize the production lines of «Kokand Superphosphate Plant JSC». The construction of an innovative research and production pharmaceutical cluster «Tashkent Pharma Park» in the Tashkent region has also begun. Major projects are being implemented in the energy sector last year the from Emirates «Masdar» and the French «TOTAL Eren» won a tender for the construction of two solar power plants with a capacity of 100 MW on the basis of a public-private partnership.
Potential & Opportunities in Transport & Logistics Industries
It is also important to note that Uzbekistan is one of the two states in the world that are landlocked and border exclusively on countries that also do not have access to the world’s oceans. Therefore, to ensure high rates of economic growth, it is necessary to create an effective and developed transport and logistics system that will facilitate the country’s integration into the international trade system. In this regard, the government is taking large-scale measures to accelerate the development of the transport system and transit potential of the country. In particular, innovative technologies are being introduced into this area, trade procedures are being simplified, the efficiency of cross-border procedures and the integrated use of transport and transit potential are improved. The institutional and regulatory framework for the industry is being strengthened. In particular, by the decree of the head of Uzbekistan dated February 1, 2019, the Ministry of Transport was created, which is defined as a government body for the development and implementation of a unified state policy in the development of road, rail, air, river transport, metro, and road facilities.
As part of the implementation of the «Comprehensive program to improve transport infrastructure and diversify foreign trade routes for the carriage of goods for 2018-2022», systematic work is being carried out to improve the legal framework and the practical implementation of international agreements, to develop new transport and transit corridors and a network of logistics centres, to expand the fleet of road transport means and aircraft, creating conditions for efficient transportation and handling of goods in neighbouring countries.The foregoing testifies to the high efficiency and transparency of the reforms being carried out.
At the same time, Uzbekistan is well aware that the activation of private investment requires the emancipation of entrepreneurial activity, the support of a constant dialogue with business, painstaking work to identify and overcome barriers that impede the development of certain sectors. Stimulating investment activity will be facilitated by the development of instruments of public-private partnership and project financing, and for the high-quality implementation of reforms and maintaining stable high rates of economic growth, an effective strategy for the development of the banking and financial sector is important.The leadership and government of Uzbekistan is committed to achieving these objectives, and work to create a sustainable and competitive model of the country’s economy continues.
Above article contributed by the Ministry of Investments and Foreign Trade of the Republic of Uzbekistan